(Reuters) - Family Dollar Stores Inc FDO.N said on Wednesday it was taking a cautious approach to 2014 as shoppers focus on basics, and posted a better-than-expected quarterly profit as its focus on controlling costs helped offset weaker-than-expected sales.
The results showed Family Dollar was not weathering economic issues like higher payroll taxes as well as bigger discounter Dollar General Corp (DG.N).
Shares of Family Dollar fell nearly 2 percent to $68.12 in early trading, while Dollar General dipped 0.5 percent to $56.05.
Family Dollar’s same-store sales, or sales at stores open at least a year, were flat in the fourth quarter, missing the company’s July forecast for an increase of about 2 percent. Traffic, or customer visits to stores, and the average spent on transactions were also flat in the quarter.
Family Dollar expects same-store sales to decline in the low-single digits in percentage terms in the current first quarter, after rising 6.6 percent a year earlier.
“At the end of the day, retail stocks are all about sales and I would assume the stock will be a little bit weaker” because of the flat same-store sales last quarter and the outlook for negative same-store sales this quarter, said Edward Jones analyst Brian Yarbrough.
Family Dollar warned months ago that the economy was taking a toll on shoppers. The environment “was more challenging than expected,” Chairman and Chief Executive Howard Levine said in a statement on Wednesday.
His comments came after larger retailers, including Wal-Mart Stores Inc’s (WMT.N) Walmart U.S., noted that issues like higher taxes were leading low-income shoppers to curb spending.
Both Family Dollar and Dollar General continue to open hundreds more stores. They both started to sell tobacco products like cigarettes in recent months since many of their customers tend to use tobacco more often than consumers overall. However, those margins are thin and pressure overall profit margins.
“We are left wondering why management’s initiatives are not currently driving or are not expected to drive stronger sales growth” this year, said BMO Capital Markets analyst Wayne Hood. He rates Family Dollar as “market perform” and Dollar General as “outperform.”
Dollar General, which has a business model similar to that of Family Dollar, posted a 5.1 percent rise in second-quarter same-store sales, and said traffic and average transactions were both up. It also predicted same-store sales would rise 4 percent to 5 percent this year.
Walmart U.S. has said it expects same-store sales to be flat in the third quarter after falling 0.3 percent in the second quarter.
Family Dollar earned $102.2 million, or 88 cents per share, in the fourth quarter of fiscal 2013 ended August 31, up from $80.9 million, or 69 cents per share, a year earlier.
It reported adjusted earnings per share of 86 cents, which excluded $5 million from a change in accounting for certain vendor allowances. That exceeded analysts’ average estimate of 84 cents, according to Thomson Reuters I/B/E/S.
Sales rose 5.8 percent to $2.5 billion, missing analysts’ expectations of $2.56 billion.
For fiscal 2014, it forecast a low-single-digit increase in same-store sales and a mid-single-digit increase in total sales.
Family Dollar said it expects higher profitability as it moves through the fiscal year, which began on September 1. It expects to earn $3.80 to $4.15 per share in fiscal 2014. It earned $3.83 per share in fiscal 2013, which included an extra week that it estimated added 7 cents to profit.
For the first quarter of fiscal 2014, Family Dollar forecast earnings per share of 65 cents to 75 cents, compared with a profit of 69 cents per share a year earlier.
It plans to open about 525 stores and close about 80 stores in fiscal 2014. It opened 500 stores, closed 26 stores and renovated, relocated or expanded 830 stores in fiscal 2013.
It targeted capital expenditures of $550 million to $600 million this year, well below $744.4 million in fiscal 2013.
Reporting by Jessica Wohl in Chicago; Editing by Gerald E. McCormick and Jeffrey Benkoe